Morning Review - 092110

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.
com
Christine Clark: 212 448 6085 or cclark@convergex.com
Beth Reed: 212 448 6096 or breed@convergex.com
Stocks extended September’s rally on Monday, with all 3 major U.S. indices advancing more than 1 Morning Markets Briefing
percentage point (S&P 500 +1.5%, Dow +1.4%, Nasdaq +1.7%). All 10 S&P sectors ended higher, led by
energy, consumer discretionary and financials. For the 4th day, gold hit record highs near $1,283 an
Market Commentary: September 21st, 2010
ounce, while silver approached 30-year peaks. In the day’s economic news, the NAHB housing market
index revealed sentiment among homebuilders was unchanged in September, remaining flat at 13. A snapshot of the markets through the
Any level below 50 indicates sentiment is poor. Additionally, the National Bureau of Economic lens of ConvergEx.
Research (NBER), considered the arbiter of official business cycles, announced the recession officially
ended in June 2009, effectively making it the longest downturn since the Great Depression.
Playing Catch Up to the Rally – The High Road or the Dash for Trash
Summary: The market’s persistent rally during September leaves many investors to wonder how much more performance might be in the tank. Can stocks surpass their
April levels, and what sectors might grab headlines (and money flows) from a breakout to “new highs” for 2010? One sector with a solid weighting in the S&P 500 –
Consumer Staples – is just 1% off its April 2010 highs. The tech names of the S&P 500 also within striking distance – 5.1% - of setting new highs for 2010 and the NASDAQ
100 is 3.3% away from the same outcome. At the other end of the spectrum, financials have the most ground to regain to surpass their April 2010 highs. They are down
12.7% from their springtime prices, the greatest deficit for any sector of S&P 500. As far as market cap performance, both the S&P Small and Mid Cap Indices have more
ground to recover (12% and 7%, respectively) than their large cap brothers.
Rumors of the death of equities were, it seems, exaggerated. Or premature. Take your pick. The numbers speak for themselves: the S&P 500 is up 6.6% in the last
month, and the NASDAQ up 6.7%. What is more notable than this Lazarus-like saunter from the grave of double-dip recession is where the recent lift places us relative to
the April highs for the market.
Remember April? Initial claims for unemployment seemed to be peaking. Analysts were jacking revenue and earnings estimates for their coverage on a seemingly daily
basis. And emerging markets were taking up a lot of the slack for the globe’s developed (read “geriatric”) economies. Then came worries about the persistent
sluggishness of the U.S. labor markets, European sovereign debt woes, etc. etc. etc…
Market Commentary – Pages 1-4, Equities/Conferences & Earnings – Page 5, Fixed Income – Page 6, Options – Page 7, Exchange-Traded Funds/Indexes – Page 8, Social
Media & Internet Blogs Top Stories – Page 9
1 1
©2010 BNY ConvergEx Execution Solutions LLC. May not be redistributed without express permission. All rights reserved
Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.com
But hope springs eternal in the human breast (and wallet, evidently), and September has actually put us within striking distance of new highs for 2010. That is
not just “technically” interesting – getting the S&P 500 over its April highs would provide a real boost to the point of view that the U.S. economy is not about to swan-dive
into another recession. We are not counting our chickens before they hatch – the economy has not changed that much in the last 30 days. But perceptions have clearly
shifted to the optimistic, and that has put enough fuel in the equity tank to threaten the triumph of hope over experience once again.
How close are we to some “new high” headlines? Consider the following (and check out the accompanying graphs):
• The S&P 500 closed on April 23 at 1217. That was the best close of 2010, and the market would need to rise 6.6% to match that level. We’re up that much just in
the month of September, as I noted earlier.
• Some sectors are getting very close to new highs on the year. One – Telecomm, of all things, is actually up 1.6%. Among the major sectors of the S&P 500,
Consumer Staples is down just 1% from its April highs. Tech is off a little more – 5%, but still less than the market overall.
• At the other end of the spectrum, Financials Services are in the cellar of the performance game in 2010. They are 12.7% lower than their April 2010 highs. Small
and mid cap stocks are also lagging the large cap S&P 500 index on the run back to April levels. Small Caps are 12% below April and Mid Caps are 7% below their
best levels of the year.
• Consumer Staples as a group are actually flirting with all-time highs (2007, in this case), down just 5.6% below their best-ever levels. Not many groups can say
that, of course. Most are down 20-30% from 2007. Financials are still well over 50% below where they were back in the heyday of the housing bubble.
• We threw gold into the graphs just to show that not all assets are below their 2007 and 2010 highs. The yellow metal is well north of both.
Investors who have not fully participated in the equity rally of the last month need to answer two questions.
First: do you want to fight the tape going into the end of the quarter? That seems like a pretty daunting battle, to say the least.
Assuming you do not, you need to decide if you want to buy leaders or laggards in a bid to catch up some performance. In the “leader” camp are consumer
staples, for example. They are very close to 2010 AND all time highs. Success seems to beget success in the current market, and a break out for a group that sports
decent dividend yields and is broadly considered less exposed to economic forces is a pretty appealing combination. On the other end of the spectrum, there are
financials. We doubt very much that the market can follow through without this group catching a head of steam. Yes, we know they face regulatory risk, have opaque
balance sheets and uncertain earnings power. The good news is that everyone knows that too.
So it comes down to a tough decision. Do you take the high road, or take the dash for trash? For the purposes of playing catch-up, I would answer “Both.” If the thesis
here is wrong, and markets have run their course, the staples group still has the defensive qualities needed to outperform the market and offset part of the financials
exposure. And if the market does head back to the old April highs, financials should get a bid on the notion that they will stand to benefit from better economic conditions.
2
% Change from 2010 High

4.0%
1.6%
2.0%
0.2%
0.0%
-1.1% -1.0%
-2.0%
-4.0%
-3.3%
-6.0% -5.1%
-8.0% -6.6%-6.5%-6.3%-6.2%
-7.1%
-8.1%
-10.0%
-12.0%
-11.8%-11.7%
-14.0% -12.7%
% Change from All-Time High % Change from 2007 High

10.0% 60.0% 50.4%
0.2%
0.0%
-5.6% 40.0%
-10.0%
-20.0% 20.0%
-30.0% -17.6%-17.4%-14.4%
-25.6%
-27.0% 0.0%
-28.5%
-29.6% -17.6%-17.4%
-40.0%
-39.4% -20.0%
-50.0% -5.6%
-21.6%
-32.0% -19.5%
-60.0% -40.0% -27.0%-25.6%
-24.9%
-60.8% -38.2% -29.6% -14.4%-11.3%
-70.0% -65.6%
-64.6%
-66.0%
-60.0%
-80.0% -60.8%
-78.8%
-90.0% -80.0%
3
U.S. EQUITIES
Retailer ODP soared 10.2% even as Janney Capital Markets reaffirmed its “Neutral” rating, only noting that the company is well-poised to benefit from an
economic recovery. Oppenheimer lifted BBY (+3.1%) to “Outperform” from “Perform” and increased its price target to $45 from $38, citing potential
benefits from new products during the holiday shopping season. On the earnings front, shares of LEN jumped 8.2% after the homebuilder reported
better-than-expected quarterly profit, while DFS (+3.8%) rose after an earnings beat due to lower charge-offs and rising credit card transactions.
Important Earnings Today (with Estimates) From…

ADBE: $0.41 DRI: $0.77 S&P Futures
AZO: $5.42 FDS: $0.80 One Day (High –1140.25; Low – 1117.00):
CCL: $1.47 PRGS: $0.47
CTAS: $0.38 Source: Bloomberg
CAG: $0.39
Important Conferences/Corporate Meetings Today:

Goldman Sachs Communacopia XIX Conference
Macquarie Securities Bermuda in Boston Conference – Boston, MA
UBS Global Life Sciences Conference – New York, NY
Prior Day SPX (High – 1144.86; Low – 1126.57; Close – 1142.71): Three Day (High – 1140.25; Low – 1117.00):
Source: Thomson ONE

4
FIXED INCOME
Treasuries advanced Monday ahead of the Fed’s FOMC meeting announcement on Tuesday, with investors speculating the central bank may signal more
quantitative easing. It is widely expected the Fed will leave rates unchanged near zero, as unemployment remains high and inflation low. The yield on
the long bond dropped 3 bps to 3.87%, while benchmark 10-year note yields fell 4 bps to 2.71%. After declining 10 bps last week in its biggest 5-day
decrease since May, the 2-year note yield gave up less than 1 bp, and close the day at 0.46%.
Source: Bloomberg Source: Bloomberg
Today’s Important Economic Indicators/Events (with Consensus):

Housing Starts (8:30am EST): 550 K
FOMC Meeting Announcement (2:15pm EST)
5
U.S. EQUITY OPTIONS
SPX – The underlying index had a decisively positive performance with a net gain of 1.5%, close to the high end of the daily range, which was never down on the day
( +0.1% to +1.7%). The implied volatility in SPX options declined, as expected on such a overwhelming positive day, as seen in the 2.3% decline in the VIX. The decline
in Implied Volatility might have been even more pronounced, but for the largest trade of the day being a net purchase of put premium. The October/November 1120 put
spread was bought over 40,000 times on the day at various prices (+/-$16.00). This was likely a roll of a long put position from October to November. There were other
significant buyers of net put premium, if somewhat less sizeable. For example The September Quarterly (2010) 1000/1050 put spread was bought 5,000 times @ $1.20 in
early trading. A little further out, the December (2010) 900/1075 put spread was bought about 7,000 times @ $23.00.
ETF – With the market rallying on a relatively slow news day the VIX was down about .50 and trading, while mixed, was relatively brisk. In XLF we saw a buyer of 10,000
Oct 15 straddles, we also saw a seller of 15,000 Nov 13-14-15 put butterflies. In GLD we saw a delta neutral buyer of 3500 Oct 124 puts while in Jan of 2012 we saw a roll
up of short 5,000 105 and 110 calls into 10,000 Jan 125 calls. In IWM we saw a bullish play where an investor bought 7,500 Nov 68 calls while selling 15,000 Nov 65 puts
and bought 22,500 Nov 59 puts. Finally in QQQQ we saw a seller of 20,000 Nov 51 calls.
CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

Rank 9/14/2010 9/15/2010 9/16/2010 9/17/2010 9/20/2010 30-Day Implied Vol
ARG FDO FDO FDO FDO 32.92
1
2 NOVL FSLR DTV GIS MKC 29.42

BIGGEST MOVERS
3 FDO PG APOL Q DTV 23.02 Top 10 30-Day Implied Vol Bottom 10 30-Day Implied Vol
4 PG AGN GIS APOL GIS 26.49 MKC 72.40% 29.42 Q -25.13% 17.77
5 AGN AZO PG PG FSLR 39.58
6 FSLR DTV FSLR DTV PG 13.39 EFX 38.71% 33.58 LEN -24.89% 38.88
7 AZO CEPH AZO FSLR AZO 24.83 HPQ 33.15% 27.88 NWL -19.26% 30.56
8 Q RHT CEPH AZO WFR 44.05
9 CEPH GIS Q AGN NOVL 51.78 PNW 30.90% 23.78 AEE -16.96% 20.08
10 DTV STZ STZ HSY STZ 28.85 SCG 24.51% 22.52 KIM -16.73% 32.24
11 HSP HSP HSP CMS EFX 33.58
12 STZ KMB AGN HSP KMB 13.73
MFE 23.50% 6.26 APOL -16.48% 48.39
13 PEP PEP PEP STZ WAG 25.05 CCE 17.74% 19.42 L -14.69% 21.39
14 YHOO Q MAT CEPH AGN 27.93
15 SLM STR WAG WFR CMS 22.78
TSN 14.49% 35.26 PHM -13.46% 38.95
16 CLX SLM STR PEP APOL 48.39 ORLY 14.22% 24.66 HSY -13.35% 26.54
17 KMB QLGC RHT WAG RHT 48.00 MWV 13.58% 31.93 DFS -13.23% 36.13
18 GENZ MAT KMB RHT AIV 38.34
19 MKC CLX JEC STR RSH 36.58
20 GIS WAG WFR KMB HSP 31.57
21 NKE NKE NKE MAT CF 42.73
22 QLGC AIV MKC RSH PEP 15.62 We ranked the S&P 500 companies from the highest to lowest 30 day implied to
23 WAG NOVL RSH IRM CLX 15.35 historical volatility ratio. Above we identify the 10 most positive and negative
24 RHT JEC SLM VRSN PX 21.66
25 DVA PX BMY CTL MJN 34.02
movers.
BBY DVA PX BMY CTL
PX MKC NOVL SLM VRSN
The table to the left represents the 25 highest 30 day implied to historical
JEC YHOO CLX MKC IRM volatility ratios within the S&P 500 companies. The green represents names
WFR ARG QLGC NKE MAT new to the list while the red represents names that have fallen out.
GRNZ AIV JEC STR
CEPH
HSY
Q
6
Exchange-Traded Funds/Indexes
Prior Day Peformance of Largest ETFs by Assets S&P 500 Sector ETFs
Name (Net Assets*) Ticker Category Daily Return Sector Ticker 1-Day Perf YTD Perf Sector Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 1.53% Energy XLE 1.69% -3.88% Telecomm IYZ 1.59% 8.24%
SPDR Gold Shares GLD N/A 0.26% Health XLV 1.34% -2.35% Technology XLK 1.46% -0.31%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 1.58% Industrials XLI 1.51% 12.13% Consumer Discretionary XLY 1.92% 12.13%
iShares MSCI EAFE Index EFA Foreign Large Blend 1.73% Utilities XLU 1.33% 0.77% Financials XLF 1.88% 3.37%
iShares S&P 500 Index IVV Large Blend 1.60% Consumer Staples XLP 1.09% 5.21% Materials XLB 0.63% -0.15%
Prior Day Top Volume ETFs Currency ETFs
Name Ticker Category Shares Traded Currency Ticker 1-Day Perf YTD Perf Currency Ticker 1-Day Perf YTD Perf
SPDRs SPY Large Blend 203,587,328 Australian Dollar FXA 1.12% 5.33% Mexican Peso FXM 0.08% 2.18%
PowerShares QQQ QQQQ Large Growth 74,960,978 British Pound Sterling FXB -0.46% -3.95% Swedish Krona FXS 1.01% 1.99%
iShares Russell 2000 Index IWM Small Blend 69,558,042 Canadian Dollar FXC 0.18% 1.83% Swiss Franc FXF 0.45% 2.74%
Direxion Daily Financial Bear 3X Shares FAZ Bear Market 55,236,789 Euro FXE 0.19% -8.94% USD Index Bearish UDN 0.15% -4.65%
iShares MSCI Emerging Markets Index EEM Diversified Emerging Mkts 53,748,023 Japanese Yen FXY 0.05% 8.25% USD Index Bullish UUP -0.13% 2.12%
Prior Day Top Performers VIX ETNs Fixed Income ETFs
Name Ticker Category Daily Return Name Ticker 1-Day Perf YTD Perf Bonds Ticker 1-Day Perf YTD Perf
Direxion Daily Small Cap Bull 3X Shares TNA Small Blend 8.47% iPath S&P 500 VIX VXX -2.51% -50.90% Aggregate AGG 0.04% 4.59%
ProShares UltraPro Russell2000 URTY Small Blend 8.20% Short-Term Futures ETN Investment Grade LQD 0.13% 7.05%
FaithShares Lutheran Values FKL N/A 8.18% High Yield HYG 0.16% 1.48%
Direxion Daily Real Estate Bull 3X Shares DRN Specialty - Real Estate 7.56% iPath S&P 500 VIX VXZ -1.05% 9.46% 1-3 Year Treasuries SHY 0.01% 1.60%
iShares MSCI ACWI ex US Health AXHE N/A 6.09% Mid-Term Futures ETN 7-10 Year Treasuries IEF 0.31% 10.12%
20+ Year Treasuries TLT 0.58% 13.76%
Others
ETF Ticker 1-Day Perf YTD Perf ETF Ticker 1-Day Perf YTD Perf
Gold GLD 0.26% 16.36% Crude Oil USO 1.78% -15.43%
Silver SLV 0.00% 22.68% EAFE Index EFA 1.73% -1.30%
Natural Gas UNG -4.04% -36.41% Emerging Markets EEM 1.58% 5.30%
SPDRs SPY 1.53% 2.49%
Major Index Changes:

None
ETFs in the Headlines and Blogs:

Corn ETF Continues Mind-Boggling Rally - http://etfdb.com/2010/corn-etf-continues-mind-boggling-rally/
Source launches hedge fund replicator ETF - http://www.ft.com/cms/s/0/e592cd38-c4a4-11df-bc11-00144feab49a.html
7
Top Online Social Networking Stories
Latest Popular Digg.com Business Stories

How Will Google Compete with Facebook Photos? - http://www.allfacebook.com/google-facebook-photos-2010-09
We’re opting for debit over credit when we swipe - http://www.walletpop.com/blog/2010/09/18/were-opting-for-debit-over-credit-when-we-swipe/
Black Friday 2010 predictions have arrived! What’s on sale? - http://www.walletpop.com/blog/2010/09/16/black-friday-2010-predictions-have-arrived-
whats-on-sale/
Financial Fallout in the Gulf: The Economic Aftermath of the BP Oil Spill - http://www.mint.com/blog/trends/oil-spill-aftermath-09162010/
Calculated Risk
NAHB Builder Confidence stuck at low level in September - http://www.calculatedriskblog.com/2010/09/nahb-builder-confidence-stuck-at-low.html
Over 50 and Unemployed: Will they ever work again? - http://www.calculatedriskblog.com/2010/09/over-50-and-unemployed-will-they-ever.html
FT: Junk bond prices hit pre-crisis levels - http://www.calculatedriskblog.com/2010/09/ft-junk-bond-prices-hit-pre-crisis.html
The Big Picture

Households, Treasuries, Small Biz, Inflation - http://www.ritholtz.com/blog/2010/09/households-treasuries-small-biz-inflation/
FRBC: Normal Recovery, Elevated Unemployment Levels - http://www.ritholtz.com/blog/2010/09/normal-recovery-elevated-unemployment-levels/
Who Gets What If Tax Cuts Are Extended - http://www.ritholtz.com/blog/2010/09/who-gets-what-tax-cuts/
Zero Hedge
Bill Buckler Discusses the Last Price Standing of “True Money,” Answers the Only Question Relevant to Gold Bugs - http://www.zerohedge.com/article/bill-
buckler-discusses-last-price-standing-true-money-answers-only-question-relevant-gold-bu
Preserve and Protect: The Jaws of Death - http://www.zerohedge.com/article/guest-post-preserve-and-protect-jaws-death
Bespoke Investment Group

Direct TV in Orbit - http://www.bespokeinvest.com/thinkbig/2010/9/17/direct-tv-in-orbit.html
The Conscience of a Liberal

Rat Race America - http://krugman.blogs.nytimes.com/2010/09/19/rat-race-america/
Structural Impediments - http://krugman.blogs.nytimes.com/2010/09/20/structural-impediments/
The Baseline Scenario

Elizabeth Warren: The Right Appointment at the Right Time - http://baselinescenario.com/2010/09/16/elizabeth-warren-the-right-appointment-at-the-right-
time/
8
GENERAL DISCLOSURES
This presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It is provided for general
informational purposes only and should not be relied on for any other purpose. It is not, and is not intended to be, research, a recommendation or investment advice,
as it does not constitute substantive research or analysis, nor an offer to sell or the solicitation of offers to buy any BNY ConvergEx Execution Solutions LLC
(“ConvergEx”) product or service in any jurisdiction. It does not take into account the particular investment objectives, restrictions, tax and financial situations or other
needs of any specific client or potential client. In addition, the information is not intended to provide sufficient basis on which to make an investment decision. Please
consult with your financial and other advisors before buying or selling any securities or other assets. This presentation is for qualified investors and NOT for retail
investors.
Please be advised that options carry a high level of risk and are not suitable for all investors. To receive a copy of the Options Disclosure Document please contact the
ConvergEx Compliance Department at (800) 367-8998.
The opinions and information herein are current only as of the date appearing on the cover. ConvergEx has no obligation to provide any updates or changes to such
opinions or information. The economic and market assumptions and forecasts are subject to high levels of uncertainty that may affect actual performance. Such
assumptions and forecasts may prove untrue or inaccurate and should be viewed as merely representative of a broad range of possibilities. They are subject to
significant revision and may change materially as market, economic, political and other conditions change.
Past performance is not indicative of future results, which may vary significantly. The value of investments and the income derived from investments can go down as
well as up. Future returns are not guaranteed, and a loss of principal may occur. The information and statements provided herein do not provide any assurance or
guarantee as to returns that may be realized from investments in any securities or other assets. This material does not purport to contain all of the information that an
interested party may desire and, in fact, provides only a limited view of a particular market.
The opinions expressed in this presentation are those of various authors, and do not necessarily represent the opinions of ConvergEx or its affiliates. This material has
been prepared by ConvergEx and is not a product, nor does it express the views, of other departments or divisions of BNY ConvergEx Group, LLC and its affiliates.

Morning Review - 092110

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Morning Review - 092110

Uploaded by

Copyright:

Available Formats

Nicholas Colas (Chief Market Strategist): 212 448 6095 or ncolas@convergex.

% Change from 2010 High

% Change from All-Time High % Change from 2007 High

Important Earnings Today (with Estimates) From…

Important Conferences/Corporate Meetings Today:

Source: Thomson ONE

Source: Bloomberg Source: Bloomberg

Today’s Important Economic Indicators/Events (with Consensus):

U.S. EQUITY OPTIONS

CURRENT IMPLIED VOLATILITY / CURRENT HISTORICAL VOLATILITY

2 NOVL FSLR DTV GIS MKC 29.42

Major Index Changes:

ETFs in the Headlines and Blogs:

Top Online Social Networking Stories

Latest Popular Digg.com Business Stories

The Big Picture

Bespoke Investment Group

The Conscience of a Liberal

The Baseline Scenario

You might also like